California and the West

Chevron reviews possible expansions at refineries

The oil firm also expects to spend $19.6 billion on infrastructure and development this year.

Chevron Corp. said Tuesday that it was considering expansions at several refineries, including two in California, but was abandoning plans to build a natural gas import facility off the coast of Baja California.

The nation's second-largest oil company also said it expected to spend $19.6 billion on infrastructure and development projects this year, with three-quarters of the money going toward oil and natural gas exploration and production in places such as the Gulf of Mexico, northwest Australia and the deep waters off West Africa.

Chevron said the refinery projects would raise fuel profit and increase gasoline output in some markets, while the oil and natural gas ventures would boost the company's average yearly production by at least 3% through 2010.

For Californians, the most intriguing news was the possibility that Chevron would expand fuel production at its refineries in El Segundo and the Bay Area city of Richmond.

Details were sketchy. Michael Wirth, who heads Chevron's refining and marketing business, said at an analyst conference Tuesday that the company was "taking a disciplined approach to expanding our refining scale and flexibility and to maximize long-term returns."

He outlined production increases slated for Chevron refineries in Mississippi, Britain and India. As for California, small production increases are "under review," Wirth told industry analysts in New York.

Later, spokeswoman Stephanie Price said that "there are several projects being considered to expand the flexibility and capacity of the California refineries, and they are in various stages of evaluation." A project in the permitting process for the Richmond plant could increase gasoline production when it is completed in 2009, Price said, but she couldn't supply details.

California, home to some of the nation's most expensive gasoline, suffers from a widening gap between in-state production and a steadily rising fuel demand that comes with a strong economy and a growing populace. That gap has made the state more dependent on imported oil and gasoline, but also has helped make California lucrative territory for refiners.

Chevron, the state's largest refiner, said two projects already underway would allow its California plants to make fuel from heavier, less expensive types of crude oil. Those initiatives would boost profit for Chevron, but they are not expected to increase gasoline output.

The expansions being considered by San Ramon, Calif.-based Chevron "will result in small increases in the production of transportation fuels," said Andrew Lipow, a Houston-based industry consultant. "Will it be noticeable from a price standpoint or anything like that? I don't think so. But the way demand is growing, every little bit helps."

At the analyst conference, Chief Executive Dave O'Reilly warned that escalating expenses -- stemming from a shortage of petroleum engineers as well as a lack of sophisticated drilling rigs and other equipment -- could force Chevron to reconsider some initiatives.

The company confirmed Tuesday that it had scrapped plans for a liquefied natural gas terminal near the Coronado Islands, just south of the U.S.-Mexico border. When announced in 2003, Chevron said the facility would cost about $660 million and would process 700 million cubic feet per day of imported liquefied natural gas for use by West Coast markets.

Spokeswoman Margaret Cooper said Chevron canceled its contested Mexican permits for the project last month because the natural gas once earmarked for the Baja facility would be delivered elsewhere. She said the Mexican government's battle with environmentalists over the Chevron permits was not a factor.